I’ve been thinking about this a lot recently, not compound interest on pensions specifically but the compound effect. This effect isn’t limited to our pension pots, it’s playing out in our lives every day.
Let’s look at the effect in this story.
Three friends, three lives
Jane, Sarah and Margaret went to school together. They’re still good friends and live in the same area. They have similar interests and still hang out frequently . They have similar jobs and earn similar salaries. They’re married with pretty average lives; average weight, average house, average, average. They’re in their 30s and at a crucial tipping point. They’ve been in sedentary office jobs and in the comfort of marriage for many years now and they’re starting to see the signs. A bit of flabbiness around the expanding waistlines. A little bit of stiffness and tightness from sitting all day. A little bit of boredom from a somewhat humdrum existence.
Jane plods along doing what she’s always done. She’s pretty content although she complains occasionally that life’s a bit dull and, well you know, same old same old.
Sarah starts to make a few small changes, nothing crazy, nothing her two friends would necessarily notice. She can see things sliding in a less than optimal direction and she wants more for herself.
She decides to drink more water to clarify the distinction between thirst and hunger and she stops snacking thus cutting out a few hundred calories from her day. She also starts to use her lunch hour to read some personal development books and listen to some inspiring podcasts.
She’s ready to make some changes in her life and is curious about some small things she can do to tip things in a more positive direction. She knows her office job is pretty sedentary so she makes the decision to park half a mile away from work so that she gets to walk 1 mile every day.
These are simple changes but she knows how easy it is to not do even the simplest of things, so she determines to commit to sticking with these small improvements to her routine.
Margaret makes a few changes too, though less well-conceived. Life’s a little humdrum so she decides to spend and entertain her way out of it. She buys a big cinema-screen TV for the living room and gets a Sky subscription so she can watch the best TV shows and movies. She loves watching the cookery channel and takes to baking.
The office where she works love the treats she bakes, as do her children. She feels gratified and bakes regularly. She eats what she bakes too. Regularly.
She also starts drinking a little wine with dinner most nights. Nothing crazy, but hey, she wants to have fun and relax, kick back with a little tipple. She’s a responsible adult and deserves to enjoy life.
As 6 months go by there are no discernible differences between the three friends. There’s choices have not made any perceptible difference to their lives. There are no major declines or improvements from these small changes.
At the end of a year there’s still not really any difference.
At 18 months things start to shift.
At 24 months the results of the choices are showing more clearly.
At 36 months the differences are evident. Margeret is now fat while Sarah is lean and fit. Sarah has lost 14 kilos just by cutting out snacking and committing to moderate exercise every day.
Margaret has gained nearly 14 kilos by eating more baked goods, drinking frequently, and not consciously adding a little exercise into each day.
They’ve chosen to move in opposing directions. The results of their choices have compounded over time and taken them to entirely different places.
Sarah has also invested over 1000 hours in reading self-development guides. Her marriage is thriving as a result and she’s had the self-awareness and clarity to move into a new career more aligned with her values and goals. This brings her even more satisfaction.
Margaret is unhappy at work and her marriage is shaky. Margaret’s decision to invest in rich, gooey, baked goods as the path forwards has had some negative effects.
The extra food made her feel lethargic and less likely to exercise. She wakes up in the morning feeling tired and sluggish because of the extra calories. She takes this sluggishness into work and is less effective than she could be. She misses out on promotions and feels discouraged by her lack of progress.
She dives back into cakes for solace and continues the cycle. Feeling generally negged-out about life she’s less than stellar with her husband. She hasn’t the energy to do the things that would make her feel good, like go for walks with her husband.
Because she’s not as happy she disconnects from her husband. Lost in the mire of this downward spiral she doesn’t realise she’s the reason her marriage is rocky and that her career is going nowhere.
Because she hasn’t invested her time reading inspiring and illuminating material but has instead spent her time numbing out on watching Sky she has no idea that the problems she’s facing are entirely her own making.
Jane is the same as she was 2-3 years ago, except now she’s a more bitter that nothing has changed or improved and another 3 years have passed.
The force is either working for you or against you
And that’s the compound effect. It’s a force to be reckoned with. You can consciously use it to your benefit or you can allow it to slowly but surely pummel you into the ground.
It’s either working for you or against you. If this is the difference between 3 friends over a 2-3 year period, imagine the difference over 10 years, or 20, or a lifetime?
Extraordinarily Successful versus Ordinary
Small, intelligent choices carried out over a long period of time give astounding results. It almost looks like a miracle. And yet it’s not. It’s entirely predictable.
Everything you need to know about your future, your likelihood of experiencing success, fulfillment, health and happiness, is right here in the small actions and choices you’re making today.
Look at your actions today and imagine them compounded over 5, 10, 15, 20 years. Are they taking you to the end that you most want for yourself?
If you’re taking good care of your body and mind now, the interest on those assets will grow exponentially over time. If you’re not taking good care of your body and mind, the decline will be equally exponential.
What I’ve come to realize recently is that we have a lot of control over who we are, the sort of body we have, the experiences we get to have in life, and precisely how we age.
Disease and degeneration is not an inevitable part of ageing. It’s just negative compound interest. A life built on accumulated days that don’t really support you from the inside out. Days that start with a coffee rather than a huge glug of water and some exercise. Days that are spent passively absorbing light entertainment rather than actively learning new skills. Days that are spent throwing denatured food down the pie-hole while on the run versus days spent carving out time for proper nourishment. Days spent stressing and worrying versus days spent developing a deep, trusting and co-creative relationship to life.
The tiny choices you make every day will either take you towards the life of your dreams or a default life.